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A Major US Consumer Tailwind Is Fizzling Out

MACRO ANALYSIS
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  • Latest personal incomes and spending data saw the household savings ratio unexpectedly rise to a 4-month high in May at 3.9%, up from 3.7% prior (revised up from 3.6%), hinting at American households becoming slightly more cautious in mid-Q2.
  • In trend terms it marks a broad stabilization in the savings rate and, for now, an end to the tailwind to consumption seen through 2H23 when consumers reversed the prior uplift in their savings behavior.
  • We see asymmetrical risks to the savings rate going ahead. Persistent sub-4% rates are historically rare; prior to the post-pandemic period they were last seen in the imbalances in the build up to the Great Financial Crisis. The post-pandemic period has been different owing to the unprecedent accumulation of aggregate savings, but these theoretical stocks have mostly been exhausted.
  • The concept of “excess savings” is heavily influenced by assumptions for prior trends but estimates we have seen suggest either a relatively small amount is left or none at all. Specifically, our calculations using methodology previously published by Federal Reserve economists (relying on a 2015-19 log-linear trend, note here) show $350bn or 1.3% GDP of excess savings as of Q1 vs the huge $2.25tn (9.5% GDP) in late 2021. Alternatively, SF Fed economists wrote in May that excess savings have been fully depleted after peaking at $2.1tn (note here).
  • The hypothetical nature of the concept and the wide range to estimates means that we should take these figures with caution, but the broad trend is that a major tailwind for consumption in the post-pandemic period looks to have come to an end.
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  • Latest personal incomes and spending data saw the household savings ratio unexpectedly rise to a 4-month high in May at 3.9%, up from 3.7% prior (revised up from 3.6%), hinting at American households becoming slightly more cautious in mid-Q2.
  • In trend terms it marks a broad stabilization in the savings rate and, for now, an end to the tailwind to consumption seen through 2H23 when consumers reversed the prior uplift in their savings behavior.
  • We see asymmetrical risks to the savings rate going ahead. Persistent sub-4% rates are historically rare; prior to the post-pandemic period they were last seen in the imbalances in the build up to the Great Financial Crisis. The post-pandemic period has been different owing to the unprecedent accumulation of aggregate savings, but these theoretical stocks have mostly been exhausted.
  • The concept of “excess savings” is heavily influenced by assumptions for prior trends but estimates we have seen suggest either a relatively small amount is left or none at all. Specifically, our calculations using methodology previously published by Federal Reserve economists (relying on a 2015-19 log-linear trend, note here) show $350bn or 1.3% GDP of excess savings as of Q1 vs the huge $2.25tn (9.5% GDP) in late 2021. Alternatively, SF Fed economists wrote in May that excess savings have been fully depleted after peaking at $2.1tn (note here).
  • The hypothetical nature of the concept and the wide range to estimates means that we should take these figures with caution, but the broad trend is that a major tailwind for consumption in the post-pandemic period looks to have come to an end.